- ECB warns that stablecoins pose risks to financial stability.
- Central bank’s assessment sharply contrasts with the US Treasury strategy.
- Some American banks share the same caution.
Stablecoins threaten the stability of financial markets, warns the European Central Bank.
On Monday, the ECB issued its starkest warning yet that the $304 billion stablecoin sector could siphon retail deposits from euro-area banks and destabilise global bond markets.
“Stablecoins may pose financial stability risks through their inherent vulnerabilities and their interconnectedness with traditional finance,” the ECB said in a new assessment.
“A large adverse stablecoin shock would be detrimental for crypto markets” and “other market segments could also be affected through spillovers.”
The warning adds to a choir of voices, predominantly from lenders, who have sounded the alarm that the growing popularity of stablecoins risks destabilising both financial industries and major economies.
Yet, that same popularity is also why Secretary Scott Bessent said stablecoins are “a structural growth engine” that will become a $3 trillion market by 2030.
Citi analysts went further. The US investment banking giant shared a similarly bullish view projecting the space to reach $4 trillion by 2030, and describing stablecoins as blockchain’s “ChatGPT moment.”
ECB risk-aversion
The ECB report warns that stablecoins are no longer a marginal crypto utility. They account for 80% of trading volume on centralised exchanges, and have become such large buyers of US Treasuries that a mass redemption could shake the world’s most important bond market.
“A run on these stablecoins could trigger a fire sale of their reserve assets, which could affect the functioning of US Treasury markets,” the ECB said.
The risks are not limited to financial markets. The bank emphasised that widespread stablecoin adoption could drain retail deposits away from eurozone lenders, replacing them with more volatile, non-bank funding sources.
EU policymakers also fear regulatory arbitrage. Multi-issuance stablecoins, jointly issued by EU and non-EU entities, could leave European issuers holding the bag if global redemption flows concentrate inside Europe.
The report comes on the back of the European Union Systemic Risk Board calling for the EU to toughen up its Markets in Crypto-Assets, or MiCA, law against non-compliant stablecoins.
The October report said such measures are necessary to protect the eurozone from disorderly outflows from the region’s financial markets.
American praise
The warnings out of Europe come as stablecoins are having a moment.
US President Donald Trump’s relentless backing of the crypto industry through executive orders, signing the landmark stablecoin law known as the Genius Act, and key government appointments have driven the stablecoin market to surge by 49% this year to hit $304 billion in value, according to DefiLlama.
Adding to this are a slew of former White House officials now leading the charge at crypto companies scaling up operations in the US.
To be sure, there is also pushback in America against stablecoins.
In August, major US banking lobby groups warned that the Genius Act could drain more than trillions in deposits from lenders.
Their argument? That while banks may be allowed to issue stablecoins, they’re barred from paying interest on them, while crypto-native issuers can pay market-rate yields.
This asymmetry, they lamented, hands fintech firms an unfair advantage and accelerates the very deposit-flight dynamic European regulators fear.
But crypto companies say traditional banks just want to protect profits. In a September report, Faryar Shirzad, Coinbase’s chief policy officer, argued against the American Bankers Association, the Bank Policy Institute, and others who fear that stablecoins could drain over $6 trillion of deposits away from banks.
“Deposit erosion is a myth,” Shirzad wrote, suggesting that those financial institutions are simply trying to protect their “$187 billion annual swipe-fee windfall.”
Financial institutions are also mounting broader attacks on crypto companies’ ambitions.
Earlier in November, the Independent Community Bankers of America urged the Office of the Comptroller of the Currency to reject Coinbase’s application for national trust bank charter, arguing the exchange has “demonstrably flawed risk and control functions” and operates under governance that “prevents independent oversight.”
Lance Datskoluo is DL News’ Europe-based markets correspondent. Got a tip? Email at lance@dlnews.com.
